Chapter 3: Payment Methodologies and the Outpatient Prospective Payment System

Payment Methodologies and the Outpatient Prospective Payment System part 6

Drugs and Biologicals

• Payment for Eligible Pass-Through Drugs:

  • CMS utilizes the Average Sale Price (ASP) methodology for drugs and biologicals furnished on or after $January 1, 2006$.

  • Public Law $108-173$ amended the payment rate to be equivalent to payments received in a physician's office, as established by the $2006$ Physician Fee Schedule final rule.

  • The additional pass-through payment amount is calculated as the difference between the authorized amount and the portion of the applicable fee schedule (APC payment rate) associated with the drug or biological.

  • New drugs and biologicals are paid at a rate equivalent to the physician office payment, regardless of whether a pass-through status application has been received.

• Drugs and Biologicals Without Pass-Through Status:

  • Paid in one of two ways:

    1. Packaged payment: The cost is included in the Ambulatory Payment Classification (APC) payment rate for the service or procedure.

       • Hospitals do not receive separate Medicare payments for packaged drugs, items, or supplies.

       • Beneficiaries may not be billed separately for packaged items whose costs are already recognized and covered within the OPPS payment rate.

    2. Separate payment (APC): Established for drugs and biologicals whose median cost exceeds $130$ per day. In $2022$, if the median cost was less than $130$, it was packaged.

  • Pass-through payments are identified by a specific status indicator (indicating drug, biological, or device).

• 340B Drug Pricing Programs:

  • A US federal government program requiring drug manufacturers to provide outpatient drugs to covered entities at significantly reduced prices.

  • Participating entities must register yearly.

  • In Calendar Year (CY) $2018$, CMS adopted a policy to pay for separately payable, non-pass-through drugs and biologicals (excluding vaccines) purchased through the 340B Program at the Average Sales Price (ASP) minus $22.5$ percent.

  • Exemptions from this payment reduction:

    • Sole Community Hospitals (SCHs)

    • PPS-exempt Cancer Hospitals

    • Children's Hospitals

  • Modifier JG: Should be assigned to non-pass-through separately payable drugs (Status Indicator K) purchased under the 340B program.

  • Modifier TB: An informational modifier to identify drugs purchased through the 340B Drug Pricing Programs by hospitals exempt from the payment cuts.

  • In the CY $2020$ OPPS/ASC final rule, CMS finalized a policy to pay ASP minus $22.5$ percent for 340B-acquired drugs furnished by nonexcepted off-campus Provider-Based Departments (PBDs) paid under the Physician Fee Schedule. This policy, despite ongoing litigation, was upheld by the U.S. Court of Appeals for the D.C. Circuit on $July 31, 2020$.

• Items Excluded from Packaging:

  • Antiemetic drugs (oral or injectable)

  • Orphan drugs

  • Certain vaccines

  • Blood and blood products

• **Drugs and Biologicals With Pass-Through Payment Status Expiring in CY *$2025$* (Examples from CMS-1786-P):**

  • J0248: Injection, remdesivir, $1$ mg (APC $9200$, Effective Date $04/01/2022$, Payment End Date $03/31/2025$)

  • J9304: Injection, pemetrexed (PEMFEXY), $10$ mg (APC $9442$, Effective Date $04/01/2022$, Payment End Date $03/31/2025$)

  • J3299: Injection, triamcinolone acetonide, suprachoroidal (xipere), $1$ mg (APC $9358$, Effective Date $04/01/2022$, Payment End Date $03/31/2025$)

  • J2779: Injection, ranibizumab, via sustained release intravitreal implant (susvimo), $0.1$ mg (APC $9439$, Effective Date $04/01/2022$, Payment End Date $03/31/2025$)

  • J9331: Injection, sirolimus protein-bound particles, $1$ mg (APC $9241$, Effective Date $04/01/2022$, Payment End Date $03/31/2025$)

  • J2998: Injection, plasminogen, human-tvmh, $1$ mg (APC $9206$, Effective Date $04/01/2022$, Payment End Date $03/31/2025$)

  • Note: This is a partial list; a complete list is available on the CMS website.

Transitional Pass-Through Devices

• The APC system provides temporary additional payments, known as "transitional pass-through payments," for certain drugs, biological agents, and devices.

• For "current" drugs and biological agents, these payments began on the initial implementation date of the hospital OPPS (before the enactment of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of $2000$, effective $December 21, 2000$).

• Payment Duration:

  • Prior to $2017$, payments for pass-through devices were limited to at least $two$ years but no more than $three$ years, as per section $1833(t)(6)$ of the Social Security Act.

  • Effective CY $2017$, CMS allows for quarterly expiration of pass-through payment statuses for devices, aiming to provide a pass-through status as close to $three$ years as possible for all such devices.

• Payment Calculation: Based on the charge on the individual bill, converted to cost using the Implantable Device Cost-to-Charge Ratio (CCR). This payment is sometimes subject to a reduction that offsets the cost of similar devices already included in the APC payment rate for the associated procedure.

• Criteria for Device Inclusion in a Category:

  1. If required by the FDA, the device must have received FDA approval or clearance.

     • This requirement is also met if a device has an FDA investigational device exemption (IDE) and is classified as a Category B device by the FDA.

  2. The device must be determined reasonable and necessary for the diagnosis or treatment of an illness or injury, or to improve the functioning of a malformed body part.

  3. The device must:
     a. Be an integral and subordinate part of the service furnished.
     b. Be used for one patient only.
     c. Come in contact with human tissue.
     d. Be surgically implanted or inserted, and remain with the patient upon hospital release.

  4. The device is not any of the following:
     a. Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets.
     b. A material or supply furnished incident to a service (e.g., a suture, customized surgical kit, scalpel, or clip), other than a radiological site marker.
     c. A material that may be used to replace human skin (e.g., a biological or synthetic material).

Implantable Devices

• In $2004$, CMS reinstated the C codes for implantable devices whose payment is packaged into the APC payment for the procedure in which they are used.

• These C codes represent categories of devices for which pass-through payments have expired.

• CMS states that claims containing a separate line with a C code (or other HCPCS Level II code) and a separate charge for the implantable device most completely and accurately account for the total cost of the procedure, leading to more accurate median costs for such procedures.

• Procedures requiring device implantation are assigned an individual HCPCS code-level device offset of more than $40$ percent, irrespective of the APC assignment.

• For new HCPCS codes describing device implantation procedures without associated claims data, CMS applies a $41$ percent offset until sufficient claims data becomes available.

• Device removal procedures are packaged in OPPS when performed concurrently with a device repair or replacement, and are assigned a Status Indicator of Q2. Specific removal procedures are detailed in Addendum P of the Final Rule.

• All device category C codes, for both current pass-through devices and packaged devices, can be found on Addendum B on the CMS OPPS website.

New Technology APCs

• A new technology device qualifies if it is not already described by any existing category established for transitional pass-through payments.

• CMS determines that a device must substantially improve the diagnosis or treatment of an illness or injury, or significantly improve the function of a malformed body part, compared to the benefits of existing devices.

• New technology must offer "Substantial Clinical Improvement" to qualify.

• CMS defines clinical improvement as:

  1. The device offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments.

  2. The device offers the ability to diagnose a medical condition in a patient population where that condition is currently undetectable, or offers the ability to diagnose it earlier than currently possible. There must also be evidence that the use of the device for diagnosis affects the patient's management.

  3. The use of the device significantly improves clinical outcomes for a patient population compared to currently available treatments.

     • Examples of frequently evaluated outcomes include:

       • Reduced mortality rate with the use of the device.

       • Reduced rate of device-related complications.

       • Decreased rate of subsequent diagnostic or therapeutic interventions (e.g., due to reduced recurrence of the disease process).

       • Decreased number of future hospitalizations or physician visits.

       • More rapid beneficial resolution of the disease process treated because of the use of the device.

       • Decreased pain, bleeding, or other quantifiable symptom.

       • Reduced recovery time.

• A new device is eligible for pass-through payment for at least $two$ years, but no more than $three$ years, beginning on the date CMS established its category.

Partial Hospitalization Services

• Definition: Psychiatric partial hospitalization is a distinct, organized, intensive psychiatric outpatient treatment, providing less than $24$ hours of daily care.

• Purpose: Designed for patients with profound or disabling mental health conditions, offering an individualized, coordinated, intensive, comprehensive, and multidisciplinary treatment program not available in a regular outpatient setting.

• Providers: Furnished by a hospital or Community Mental Health Center (CMHC) to patients with acute mental illness to prevent inpatient care.

• Requirements for Admission:

  • Requires admission and certification of need by a psychiatrist or physician (MD/DO) trained in the diagnosis and treatment of psychiatric illness.

  • Partial Hospitalization Programs (PHPs) differ from inpatient hospitalization and outpatient management in day programs due to:

    1. The intensity of the treatment programs and frequency of patient participation.

    2. The comprehensive structured program of services, specified in an individualized treatment plan formulated by a physician and a multidisciplinary team, with patient involvement.

• Patient Profile:

  • Patients must be under the care of a physician knowledgeable about their condition who certifies the need for partial hospitalization.

  • They must require comprehensive, multimodal treatment necessitating medical supervision and coordination due to a mental disorder that severely interferes with multiple areas of daily life (social, vocational, and/or educational functioning).

  • This dysfunction must be acute, not a chronic circumstance.

  • Patients should be treated in the least intensive and restrictive setting that meets their needs.

  • They do not require a $24$-hour-per-day level of care like inpatient settings and must have an adequate support system outside the PHP.

  • The PHP level of care must be necessary to prevent inpatient hospitalization, with evidence of failure at, or inability to benefit from, a less intensive outpatient program.

  • The acute psychiatric condition must require active treatment, including a combination of services such as intensive nursing and medical intervention, psychotherapy, occupational and activity therapy.

  • Patients must require PHP services at levels of intensity and frequency comparable to patients in an inpatient setting for similar psychiatric illnesses.

• Payment Method: Payment for partial hospitalization under OPPS is based on a per diem APC payment.

  • If the aggregate payment for specified mental health services provided by a hospital to a single beneficiary on a service date (based on individual APC rates) exceeds the maximum per diem payment rate for partial hospitalization services, the services will be paid via composite APC $8010$.

  • CMHCs continue to be paid for these services with APC $5853$.

  • Outlier Payment for CMHC: If the cost for partial hospitalization exceeds $3.40$ times the payment rate for APC $5853$, the outlier payment is calculated as $50$ percent of the amount by which the cost exceeds $3.40$ times the APC $5853$ payment rate.

• Example of Services Paid Under Partial Hospitalization:

  • Occupational Therapy (HCPCS G0129, Revenue Code 043X)

  • Activity Therapy (HCPCS G0176, Revenue Code 0904)

  • Individual Psychotherapy (HCPCS 90785, 90832, 90833, 90834, 90836, 90837, 90838, 90845, 90865, or 90880, Revenue Code 0914)

  • Education Training (HCPCS G0177, Revenue Code 0942)

Evaluation and Management (E/M) Coding for Outpatient Facilities

• Inpatient vs. Outpatient Coding:

  • Inpatient admissions (MS-DRGs) are paid based on assigned diagnosis code(s).

  • Outpatient payments (APCs) are based on assigned procedure code(s).

• Accurate CPT® and HCPCS Level II coding is crucial for facility outpatient reimbursement, especially for emergency department (ED) visits.

• E/M ED services typically serve as the reporting mechanism for the physician's cognitive portion of the visit.

• When APCs were initially created, there was no mechanism for facilities to bill for the cognitive services they provided.

• CMS determined that facilities should bill using ED coding "with a twist," requiring them to create specific criteria for billing ED services.

• As of now, CMS has not provided explicit guidelines for facility coding, emphasizing that resources and costs must be considered when developing criteria.

• Clinic visits provided in the hospital are reported by the hospital using HCPCS code $G0463$.

• CMS and the APC panel are developing specific guidelines for facilities, which will be released in the future.

• Facility Responsibility: Each facility is responsible for developing and adhering to its own system for coding emergency department visits, mapping services or combinations of services to HCSCS ED codes representing different levels of effort.

• Coders Tip:

  • A facility may bill for other services if documentation supports them, using Modifier 25 to indicate a separately identifiable E/M service was provided alongside another service.

  • When multiple clinic visits and/or outpatient E/M services occur on the same day, Modifier 27 is appended.

Hospital Emergency Departments

• Under OPPS, CMS redefined hospital emergency departments, categorizing them into Type A and Type B.

• CPT® Definition of a Hospital Emergency Department: An organized hospital-based facility providing unscheduled episodic services to patients requiring immediate medical attention, open $24$ hours a day for emergent patient care.

  • Facilities meeting this definition report emergency department E/M codes $99281-99285$.

  • Facilities open for less than $24$ hours a day should not report these codes.

• Emergency Medical Treatment and Labor Act (EMTALA):

  • Passed in $1986$ as part of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of $1985$.

  • Based on Sections $1866(a)(1)(N)$ and $1867$ of the Social Security Act.

  • Imposes specific obligations on Medicare participating hospitals and Critical Access Hospitals offering emergency services.

  • These obligations apply to all individuals presenting to the hospital's dedicated emergency department (DED) requesting examination or treatment for a medical condition, regardless of Medicare beneficiary status.

  • Section 1867(h): Prohibits delaying required screening or stabilization services to inquire about an individual's insurance or ability to pay.

  • Section 1867(d): Provides for the imposition of civil monetary penalties on hospitals and physicians who fail to meet these provisions.

• Requirements to be Considered a Dedicated Emergency Department (DED) or Facility (for EMTALA purposes): One of the following must be met, regardless of whether it is off-site or on the main campus:

  • The facility is licensed by the state in which it is located as an emergency room or department.

  • It is held out to the public (via signs, advertising, etc.) as providing care for emergency medical conditions on an urgent basis without requiring a scheduled appointment.

  • It provides at least $one-third$ ($1/3$) of all its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring an appointment.

• **Type A and Type B Emergency Departments (Effective *$2007$* under OPPS):**

  • Some DEDs meet EMTALA requirements but not the CPT® definition (e.g., not open $24/7$).

  • Type A Emergency Department:

    • Open $seven$ days a week, $24$ hours a day.

    • Services are reported with CPT® codes $99281-99285$.

    • Generally have higher resource costs than Type B visits.

    • Table of Type A Emergency Department Visits:

      • Level 1 Emergency Visits: APC $5021$, CPT® $99281$

      • Level 2 Emergency Visits: APC $5022$, CPT® $99282$

      • Level 3 Emergency Visits: APC $5023$, CPT® $99283$

      • Level 4 Emergency Visits: APC $5024$, CPT® $99284$

      • Level 5 Emergency Visits: APC $5025$, CPT® $99285$

  • Type B Emergency Department:

    • Five codes were created to define Type B ED visits: $G0380-G0384$.

    • Enables tracking of median costs and resources that differ from Type A ED and clinic visits.

    • A facility can be classified as Type A or Type B regardless of its physical location.

    • Criteria for Type B: The facility must be licensed by the state as an emergency room or department, is advertised as providing emergency care on an urgent basis, and/or provides at least one-third ($1/3$) of its outpatient visits for emergency medical conditions on an urgent basis without a scheduled appointment.

    • Key Difference from Type A: The Type B facility is not required to be open $24$ hours a day, $7$ days a week.